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Start Your Business Startup Basics

Subscription Economy Success: Tips for New Businesses

Subscription Economy Success: Tips for New Businesses
Credit: This Is Me/Shutterstock

Whether it's entertainment media, apparel, groceries, cosmetics or even dog toys, it seems there's a subscription service for just about everything nowadays.

According to Rob Sutherland, chief revenue officer of Fusebill, a company that offers solutions to automate and manage small and midsize subscription businesses, consumer behavior, particularly among younger people, is changing: The traditional desire to own and accumulate goods — from music to cars to physical documents — is fading.

"There is a fundamental shift occurring in the world towards a subscription-based economy. With the growth of mobile, cloud and IoT, we are seeing the beginnings of a move towards 'everything as a service,'" Sutherland said.

Isabelle Roussin, chief solution expert at SAP Hybris, a provider of e-commerce software and omnichannel solutions, said subscription services have become popular because they give consumers more options, flexibility and personalized experiences.

"For example, Netflix, Spotify, BirchBox and Stitch Fix ... allow consumers to browse a subsect of products selected just for them and soon they will expect this type of experience from all industries," Roussin said. "While manufacturing, high-tech and media markets have already started using subscription service models, they will need to build on it to create a personalized customer journey."

Because of the service-oriented approach of subscription models, companies often see more efficient business planning, improved customer relationships, and enhanced product innovation and creativity, Roussin said. The in-depth data generated from this model also helps businesses set better financial expectations by more accurately predicting revenue, she said. [See Related Story: 4 Recurring Revenue Models to Grow Your E-Commerce Business]

"For almost all products and content, subscription-based business models are becoming the standardized go-to market, as recurring revenues make the predictability of the business far less daunting," Sutherland said.

Though a subscription business model can be very lucrative, it's not without its challenges. Roussin noted that the large volumes of data gathered by subscription businesses can be difficult to handle, but it must be harnessed properly for a business to succeed.

"Putting the customer and their engagement data — usage data, location data, clickstreams, sentiment analysis, even IOT sensors — in the center of the new data value-chain is the best way to personalize the experience for them," she said. "The information needs to be collected, aggregated, cleaned and analyzed in real time, not only to offer this dedicated customer experience, but also to monetize it accordingly."

Another source of trouble for a subscription business is managing the billing process. One of the most common causes of customer dissatisfaction is when a billing mistake occurs, Sutherland said. For this reason, you need the right technological tools at your disposal to help you stay on top of your revenue streams.

"Subscription-based customers have high expectations," Sutherland said. "They want a memorable and personalized experience, immediate fulfillment, anywhere (in real time), and ongoing value. Having an automated billing system that successfully manages renewals, upgrades, downgrades and contract terminations is essential for a successful monetization strategy and winning customer relationships."

With so many new and existing subscription businesses out there, you'll really need to make your offering stand out to compete against bigger players. If you're thinking of getting into this market, our expert sources offered the following tips to help you succeed.

Set prices to meet your business goals. Pricing and packaging are your most valuable strategic weapons as a subscription business, Sutherland said.

"The one-price-fits-all days are over," he said. "This requires the ability to easily define and introduce new price packages, make adjustments to invoices down to the line and support automated billing. Without these, the customer relationship may flame out prematurely."

Roussin agreed, noting that competitive, adjustable pricing can make a huge difference in your company's performance.

"Prices can change daily, monthly or annually depending on market trends," she told Business News Daily. "It is not just a matter of changing a price point, but rather tuning, in concert, all the knobs and dials across upfront fees, recurring fees, metered usage fees with entitlements and more. This must be done with great agility in order to stay ahead of competitors."

Focus on relationships, not transactions. Businesses and consumers alike love the subscription economy because of the relationship that builds between customer and company. But that relationship isn't unconditional, said Sutherland — it's important to make sure that all facets of the customer experience are designed to keep them satisfied and impressed with your service. 

"For example, an unreliable billing system that causes failed transactions or mischarges can be a real deal-breaker," he said.

Timely, informative and consistent communication is a critical component of building great customer relationships. Customers of subscription businesses must be guided to the right pricing plan for their individual needs, and remain informed of where they are in their subscription plan and what benefits they have remaining, Roussin said. She advised offering a contextual customer experience across channels so customers can engage where, when and how they want to with the business.

"This is especially important if they are providing personal data, as they expect  personalized experiences and timely customer service in return," she added. 

Experiment with add-on services. At some point, you may find that your initial core product offering isn't enough to keep customers engaged. Roussin recommends developing a robust partner network that you can tap for add-on services to your packages.

"By using a partner's capabilities to enhance or change services, the consumer experience is new and exciting, keeping them engaged," she said. "These partnerships will also diversify the company's offerings, enabling them to test out different markets without a large investment."

Use analytics tools to spot trends and adapt accordingly. If you're keeping an eye on track churn and acquisition rates, you can fine-tune your offerings to maximize subscription revenue growth, Sutherland said. Customer reporting by status, segments and aging receivables are also good ways to isolate and correct collection issues and increase cash generation.

If you're noticing any problems or trends based on your analytics reports, your company should be able to adapt to meet customer needs. Businesses need to be agile enough to change prices, offerings, etc., based on demand, Roussin said.

Nicole Fallon Taylor

Nicole received her Bachelor's degree in Media, Culture and Communication from New York University. She began freelancing for Business News Daily in 2010 and joined the team as a staff writer three years later. She currently serves as the managing editor. Reach her by email, or follow her on Twitter.